International stock portfolio selection and performance measures recognizing higher moments of return distributions

Since the seminal works of Markowitz (1952), Sharpe (1964), and Lintner (1965), numerous studies on portfolio selection and performance measure have been based upon the mean-variance framework. However, several researchers (e.g., Arditti (1967, and 1971), Samuelson (1970), and Rubinstein (1973)) argue that the higher moments cannot be neglected unless there is reason to believe that: (i) the asset returns are normally distributed and the investor's utility function is quadratic, or (ii) the empirical evidence demonstrates that higher moments are irrelevant to the investor's decision. Based on the same argument, this dissertation investigates the impact of higher moments of return distributions on three issues concerning the 14 international stock markets.^ First, the portfolio selection with skewness is determined using: the Polynomial Goal Programming in which investor preferences for skewness can be incorporated. The empirical findings suggest that the return distributions of international stock markets are not normally distributed, and that the incorporation of skewness into an investor's portfolio decision causes a major change in the construction of his optimal portfolio. The evidence also indicates that an investor will trade expected return of the portfolio for skewness. Moreover, when short sales are allowed, investors are better off as they attain higher expected return and skewness simultaneously.^ Second, the performance of international stock markets are evaluated using two types of performance measures: (i) the two-moment performance measures of Sharpe (1966), and Treynor (1965), and (ii) the higher-moment performance measures of Prakash and Bear (1986), and Stephens and Proffitt (1991). The empirical evidence indicates that higher moments of return distributions are significant and relevant to the investor's decision. Thus, the higher moment performance measures should be more appropriate to evaluate the performances of international stock markets. The evidence also indicates that various measures provide a vastly different performance ranking of the markets, albeit in the same direction.^ Finally, the inter-temporal stability of the international stock markets is investigated using the Parhizgari and Prakash (1989) algorithm for the Sen and Puri (1968) test which accounts for non-normality of return distributions. The empirical finding indicates that there is strong evidence to support the stability in international stock market movements. However, when the Anderson test which assumes normality of return distributions is employed, the stability in the correlation structure is rejected. This suggests that the non-normality of the return distribution is an important factor that cannot be ignored in the investigation of inter-temporal stability of international stock markets. ^

Essays on the impact of stakeholders' sentiment on the financial decision making process

The most important factor that affects the decision making process in finance is the risk which is usually measured by variance (total risk) or systematic risk (beta). Since investors’ sentiment (whether she is an optimist or pessimist) plays a very important role in the choice of beta measure, any decision made for the same asset within the same time horizon will be different for different individuals. In other words, there will neither be homogeneity of beliefs nor the rational expectation prevalent in the market due to behavioral traits. This dissertation consists of three essays. In the first essay, “ Investor Sentiment and Intrinsic Stock Prices”, a new technical trading strategy was developed using a firm specific individual sentiment measure. This behavioral based trading strategy forecasts a range within which a stock price moves in a particular period and can be used for stock trading. Results indicate that sample firms trade within a range and give signals as to when to buy or sell. In the second essay, “Managerial Sentiment and the Value of the Firm”, examined the effect of managerial sentiment on the project selection process using net present value criterion and also effect of managerial sentiment on the value of firm. Final analysis reported that high sentiment and low sentiment managers obtain different values for the same firm before and after the acceptance of a project. Changes in the cost of capital, weighted cost of average capital were found due to managerial sentiment. In the last essay, “Investor Sentiment and Optimal Portfolio Selection”, analyzed how the investor sentiment affects the nature and composition of the optimal portfolio as well as the portfolio performance. Results suggested that the choice of the investor sentiment completely changes the portfolio composition, i.e., the high sentiment investor will have a completely different choice of assets in the portfolio in comparison with the low sentiment investor. The results indicated the practical application of behavioral model based technical indicator for stock trading. Additional insights developed include the valuation of firms with a behavioral component and the importance of distinguishing portfolio performance based on sentiment factors.

A comprehensive study of bankruptcy prediction: Accounting ratios, market variables, and microstructure

Bankruptcy prediction has been a fruitful area of research. Univariate analysis and discriminant analysis were the first methodologies used. While they perform relatively well at correctly classifying bankrupt and nonbankrupt firms, their predictive ability has come into question over time. Univariate analysis lacks the big picture that financial distress entails. Multivariate discriminant analysis requires stringent assumptions that are violated when dealing with accounting ratios and market variables. This has led to the use of more complex models such as neural networks. While the accuracy of the predictions has improved with the use of more technical models, there is still an important point missing. Accounting ratios are the usual discriminating variables used in bankruptcy prediction. However, accounting ratios are backward-looking variables. At best, they are a current snapshot of the firm. Market variables are forward-looking variables. They are determined by discounting future outcomes. Microstructure variables, such as the bid-ask spread, also contain important information. Insiders are privy to more information that the retail investor, so if any financial distress is looming, the insiders should know before the general public. Therefore, any model in bankruptcy prediction should include market and microstructure variables. That is the focus of this dissertation. The traditional models and the newer, more technical models were tested and compared to the previous literature by employing accounting ratios, market variables, and microstructure variables. Our findings suggest that the more technical models are preferable, and that a mix of accounting and market variables are best at correctly classifying and predicting bankrupt firms. Multi-layer perceptron appears to be the most accurate model following the results. The set of best discriminating variables includes price, standard deviation of price, the bid-ask spread, net income to sale, working capital to total assets, and current liabilities to total assets.

Three essays on dual-class stock structure

Dual-class stock structure is characterized by the separation of voting rights and cash flow rights. The departure from a common "one share-one vote" configuration creates ideal conditions for conflicts of interest and agency problems between controlling insiders (the holders of voting rights) and remaining shareholders. The owners of voting rights have the opportunity to extract private benefits and act in their personal interest; as a result, dual-class firms are often perceived to have low transparency and high information asymmetry. This dissertation investigates the quality of information and the information environment of firms with two classes of stock. The first essay examines the quality of information by studying accruals in dual-class firms in comparison to firms with only one class of stock. The results suggest that the quality of accruals is better in dual-class firms than in single-class firms. In addition, the difference in the quality of accruals between firms that abolish their dual-class share structure by unification and singe-class firms disappears in the post-unification period. The second essay investigates the earnings informativeness of dual-class firms by examining the explanatory power of earnings for returns. The results indicate that the earnings informativeness is lower for dual-class firms as compared to single-class firms. Earnings informativeness improves in firms that unify their shares. The third essay compares the level of information asymmetry between dual-class firms and single-class firms. It is documented that the information environment for dual-class firms is worse than for single-class firms. Also, the finding suggests that the difference in information environment between dual-class firms and single-class firms disappears after dual-class stock unification.

The role of overseas Chinese investment in the emerging countries of Southeast and East Asia: A Confucian model of the foreign direct investment decision-making process using factors unconsidered in the West

The purpose of this study was to gain a better understanding of the foreign direct investment location decision making process through the examination of non-Western investors and their investment strategies in non-traditional markets. This was accomplished through in-depth personal interviews with 50 Overseas Chinese business owners and executives in several different industries from Hong Kong, Singapore, Taiwan, Malaysia, and Thailand about 97 separate investment projects in Southeast and East Asia, including The Philippines, Malaysia, Hong Kong, Singapore, Vietnam, India, Pakistan, South Korea, Australia, Indonesia, Cambodia, Thailand, Burma, Taiwan, and Mainland China.^ Traditional factors utilized in Western models of the foreign direct investment decision making process are reviewed, as well as literature on Asian management systems and the current state of business practices in emerging countries of Southeast and East Asia. Because of the lack of institutionalization in these markets and the strong influences of Confucian and patriarchal value systems on the Overseas Chinese, it was suspected that while some aspects of Western rational economic models of foreign direct investment are utilized, these models are insufficient in this context, and thus are not fully generalizable to the unique conditions of the Overseas Chinese business network in the region without further modification.^ Thus, other factors based on a Confucian value system need to be integrated into these models. Results from the analysis of structured interviews suggest Overseas Chinese businesses rely more heavily on their network and traditional Confucian values than rational economic factors when making their foreign direct investment location decisions in emerging countries in Asia. This effect is moderated by the firm's industry and the age of the firm's owners. ^

On the accuracy of nonsurvey regional input-output multipliers: An empirical study

Correct specification of the simple location quotients in regionalizing the national direct requirements table is essential to the accuracy of regional input-output multipliers. The purpose of this research is to examine the relative accuracy of these multipliers when earnings, employment, number of establishments, and payroll data specify the simple location quotients.^ For each specification type, I derive a column of total output multipliers and a column of total income multipliers. These multipliers are based on the 1987 benchmark input-output accounts of the U.S. economy and 1988-1992 state of Florida data.^ Error sign tests, and Standardized Mean Absolute Deviation (SMAD) statistics indicate that the output multiplier estimates overestimate the output multipliers published by the Department of Commerce-Bureau of Economic Analysis (BEA) for the state of Florida. In contrast, the income multiplier estimates underestimate the BEA's income multipliers. For a given multiplier type, the Spearman-rank correlation analysis shows that the multiplier estimates and the BEA multipliers have statistically different rank ordering of row elements. The above tests also find no significant different differences, both in size and ranking distributions, among the vectors of multiplier estimates. ^

Essays on firm behavior and firm performance

This dissertation comprises three individual chapters in an effort to examine different explanatory variables that affect firm performance. Chapter Two proposes an additional determinant of firm survival. Based on a detailed examination of firm survival in the British automobile industry between 1895 and 1970, we conclude that a firm's selection of submarket (defined by quality level) influenced survival. In contrast to findings for the US automobile industry, there is no evidence of first-mover advantage in the market as a whole. However, we do find evidence of first-mover advantage after conditioning on submarket choice. Chapter Three examines the effects of product line expansion on firm performance in terms of survival time. Based on a detailed examination of firm survival time in the British automobile industry between 1895 and 1970, we find that diversification exerts a positive effect on firm survival. Furthermore, our findings support the literature with respect to the impacts of submarket types, pre-entry experience, and timing of entry on firm survival time. Chapter Four examines corporate diversification in U.S. manufacturing and service firms. We develop measures of how related a firm's diverse activities are using input-output data and the NAILS classification to construct indexes of "vertical relatedness" and "complementarity". Strong relationships between these two measures are found. We utilize profitability and excess value as the measure for firm performance. Econometric analysis reveals that there is no relationship between the degree of relatedness of diversification and firm performance for the study period.

Three essays on the interrelationships among financial restatements, corporate governance, market microstructure and the firm's rate of return

The increase in the number of financial restatements in recent years has resulted in a significant decrease in the amount of market capitalization for restated companies. Prior literature did not differentiate between single and multiple restatements announcements. This research investigated the inter-relationships among multiple financial restatements, corporate governance, market microstructure and the firm’s rate of return in the form of three essays by differentiating between single and multiple restatement announcement companies. First essay examined the stock performance of companies announcing the financial restatement multiple times. The postulation is that prior research overestimates the abnormal return by not separating single restatement companies from multiple restatement companies. This study investigated how market penalizes the companies that announce restatement more than once. Differentiating the restatement announcement data based on number of restatement announcements, the results supported the non persistence hypothesis that the market has no memory and negative abnormal returns obtained after each of the restatement announcements are completely random. Second essay examined the multiple restatement announcements and its perceived resultant information asymmetry around the announcement day. This study examined the pattern of information asymmetry for these announcements in terms of whether the bid-ask spread widens around the announcement day. The empirical analysis supported the hypotheses that the spread does widen not only around the first restatement announcement day but around every subsequent announcement days as well. The third essay empirically examined the financial and corporate governance characteristics of single and multiple restatement announcements companies. The analysis showed that corporate governance variables influence the occurrence of multiple restatement announcements and can distinguish multiple restatements announcement companies from single restatement announcement companies.

Strategic positioning of Taiwan in the outsourcing market: Evidence from information technology services and electronic manufacturing outsourcing to China

In outsourcing relationships with China, the Electronic Manufacturing (EM) and Information Technology Services (ITS) industry in Taiwan may possess such advantages as the continuing growth of its production value, complete manufacturing supply chain, low production cost and a large-scale Chinese market, and language and culture similarity compared to outsourcing to other countries. Nevertheless, the Council for Economic Planning and Development of Executive Yuan (CEPD) found that Taiwan's IT services outsourcing to China is subject to certain constraints and might not be as successful as the EM outsourcing (Aggarwal, 2003; CEPD, 2004a; CIER, 2003; Einhorn and Kriplani, 2003; Kumar and Zhu, 2006; Li and Gao, 2003; MIC, 2006). Some studies examined this issue, but failed to (1) provide statistical evidence about lower prevalence rates of IT services outsourcing, and (2) clearly explain the lower prevalence rates of IT services outsourcing by identifying similarities and differences between both types of outsourcing contexts. This research seeks to fill that gap and possibly provide potential strategic guidelines to ITS firms in Taiwan. This study adopts Transaction Cost Economics (TCE) as the theoretical basis. The basic premise is that different types of outsourcing activities may incur differing transaction costs and realize varying degrees of outsourcing success due to differential attributes of the transactions in the outsourcing process. Using primary data gathered from questionnaire surveys of ninety two firms, the results from exploratory analysis and binary logistic regression indicated that (1) when outsourcing to China, Taiwanese firms' ITS outsourcing tends to have higher level of asset specificity, uncertainty and technical skills relative to EM outsourcing, and these features indirectly reduce firms' outsourcing prevalence rates via their direct positive impacts on transaction costs; (2) Taiwanese firms' ITS outsourcing tends to have lower level of transaction structurability relative to EM outsourcing, and this feature indirectly increases firms' outsourcing prevalence rates via its direct negative impacts on transaction costs; (3) frequency does influence firms' transaction costs in ITS outsourcing positively, but does not bring impacts into their outsourcing prevalence rates, (4) relatedness does influence firms' transaction costs positively and prevalence rates negatively in ITS outsourcing, but its impacts on the prevalence rates are not caused by the mediation effects of transaction costs, and (5) firm size of outsourcing provider does not affect firms' transaction costs, but does affect their outsourcing prevalence rates in ITS outsourcing directly and positively. Using primary data gathered from face-to-face interviews of executives from seven firms, the results from inductive analysis indicated that (1) IT services outsourcing has lower prevalence rates than EM outsourcing, and (2) this result is mainly attributed to Taiwan's core competence in manufacturing and management and higher overall transaction costs of IT services outsourcing. Specifically, there is not much difference between both types of outsourcing context in the transaction characteristics of reputation and most aspects of overall comparison. Although there are some differences in the feature of firm size of the outsourcing provider, the difference doesn't cause apparent impacts on firms' overall transaction costs. The medium or above medium difference in the transaction characteristics of asset specificity, uncertainty, frequency, technical skills, transaction structurability, and relatedness has caused higher overall transaction costs for IT services outsourcing. This higher cost might cause lower prevalence rates for ITS outsourcing relative to EM outsourcing. Overall, the interview results are consistent with the statistical analyses and provide support to my expectation that in outsourcing to China, Taiwan's electronic manufacturing firms do have lower prevalence rates of IT services outsourcing relative to EM outsourcing due to higher transaction costs caused by certain attributes. To solve this problem, firms' management should aim at identifying alternative strategies and strive to reduce their overall transaction costs of IT services outsourcing by initiating appropriate strategies which fit their environment and needs.

The effect of the business cycle on the performance of socially responsible equity mutual funds

The current study applies a two-state switching regression model to examine the behavior of a hypothetical portfolio of ten socially responsible (SRI) equity mutual funds during the expansion and contraction phases of US business cycles between April 1991 and June 2009, based on the Carhart four-factor model, using monthly data. The model identified a business cycle effect on the performance of SRI equity mutual funds. Fund returns were less volatile during expansion/peaks than during contraction/troughs, as indicated by the standard deviation of returns. During contraction/troughs, fund excess returns were explained by the differential in returns between small and large companies, the difference between the returns on stocks trading at high and low Book-to-Market Value, the market excess return over the risk-free rate, and fund objective. During contraction/troughs, smaller companies offered higher returns than larger companies (ci = 0.26, p = 0.01), undervalued stocks out-performed high growth stocks (h i = 0.39, p <0.0001), and funds with growth objectives out-performed funds with other objectives (oi = 0.01, p = 0.02). The hypothetical SRI portfolio was less risky than the market (bi = 0.74, p <0.0001). During expansion/peaks, fund excess returns were explained by the market excess return over the risk-free rate, and fund objective. Funds with other objectives, such as balanced funds and income funds out-performed funds with growth objectives (oi = −0.01, p = 0.03). The hypothetical SRI portfolio exhibited similar risk as the market (bi = 0.93, p <0.0001). The SRI investor adds a third criterion to the risk and return trade-off of traditional portfolio theory. This constraint is social performance. The research suggests that managers of SRI equity mutual funds may diminish value by using social and ethical criteria to select stocks, but add value by superior stock selection. The result is that the performance of SRI mutual funds is very similar to that of the market. There was no difference in the value added among secular SRI, religious SRI, and vice screens.

File Control: The Heart Of Business Computer Management

In his study - File Control: The Heart Of Business Computer Management - William G. O'Brien, Assistant Professor, The School of Hospitality Management at Florida International University, initially informs you: “Even though computers are an everyday part of the hospitality industry, many managers lack the knowledge and experience to control and protect the files in these systems. The author offers guidelines which can minimize or prevent damage to the business as a whole.” Our author initially opens this study with some anecdotal instances illustrating the failure of hospitality managers to exercise due caution with regard to computer supported information systems inside their restaurants and hotels. “Of the three components that make up any business computer system (data files, programs, and hard-ware), it is files that are most important, perhaps irreplaceable, to the business,” O’Brien informs you. O’Brien breaks down the noun, files, into two distinct categories. They are, the files of extrinsic value, and its counterpart the files of intrinsic value. An example of extrinsic value files would be a restaurant’s wine inventory. “As sales are made and new shipments are received, the computer updates the file,” says O’Brien. “This information might come directly from a point-of-sale terminal or might be entered manually by an employee,” he further explains. On the intrinsic side of the equation, O’Brien wants you to know that the information itself is the valuable part of this type of file. Its value is over and above the file’s informational purpose as a pragmatic business tool, as it is in inventory control. “The information is money in the legal sense For instance, figures moved about in banking system computers do not represent dollars; they are dollars,” O’Brien explains. “If the record of a dollar amount is erased from all computer files, then that money ceases to exist,” he warns. This type of information can also be bought and sold, such as it is in customer lists to advertisers. Files must be protected O’Brien stresses. “File security requires a systematic approach,” he discloses. O’Brien goes on to explain important elements to consider when evaluating file information. File back-up is also an important factor to think about, along with file storage/safety concerns. “Sooner or later, every property will have its fire, flood, careless mistake, or disgruntled employee,” O’Brien closes. “…good file control can minimize or prevent damage to the business as a whole.”

Recreational Foodservice management: A Delphi study of needed competencies

The purpose of this study was to identify the needed competencies of a Recreational Foodservice manager. A three round Delphi method of iteration was used. Delphi is a research method that utilizes iterating rounds to elicit the opinion of a panel of experts regarding a specific subject.^ A nominating committee of 22 industry leaders was consulted to establish a panel of 40 management experts, of which 35 (87.5%) completed all three rounds of the Delphi study.^ Round One of the study identified 17 specific job functions of a Recreational Foodservice manager. The researcher prepared an instrument detailing 60 competencies derived from an analysis of Round One results and distributed it as a Round Two instrument requesting the panel opinion regarding the relative importance of each listed competency on a five point Likert scale.^ The results of Round Two were tabulated and analyzed to ascertain areas of consensus. A Round Three instrument was prepared advising panelists of all areas of consensus, their dissenting opinions, if any, and a request for a revised opinion.^ A final report was prepared listing the 60 competencies and the panel opinion that eight were of highest priority, 29 of above average priority, and 23 of average priority. No item received two other available ratings, below average priority and lowest priority.^ The implications of these findings suggest necessary areas of curriculum development and industry management development to implement professionalism for Recreational Foodservice managers. ^

Civil service reform trends in public personnel management: Experiences from the Commonwealth of the Bahamas

This study has explored the potential for implementing a merit-based public personnel system in The Bahamas, a former British colony in The Commonwealth Caribbean. Specifically, the study evaluated the use of merit-based public personnel management practices in areas of recruitment, selection, promotion, training and employee development and performance evaluation. Driving forces and barriers which impact merit system successes and failures as well as strategies for institutionalizing merit system practices are identified. Finally the study attempted to apply the developmental model created by Klingner (1996) to describe the stage of public personnel management in The Bahamas. The data for the study was collected through in-depth interviews with expert observers. ^

Customer relationship management: A content analysis of issues and best practices

This dissertation is a study of customer relationship management theory and practice. Customer Relationship Management (CRM) is a business strategy whereby companies build strong relationships with existing and prospective customers with the goal of increasing organizational profitability. It is also a learning process involving managing change in processes, people, and technology. CRM implementation and its ramifications are also not completely understood as evidenced by the high number of failures in CRM implementation in organizations and the resulting disappointments. ^ The goal of this dissertation is to study emerging issues and trends in CRM, including the effect of computer software and the accompanying new management processes on organizations, and the dynamics of the alignment of marketing, sales and services, and all other functions responsible for delivering customers a satisfying experience. ^ In order to understand CRM better a content analysis of more than a hundred articles and documents from academic and industry sources was undertaken using a new methodological twist to the traditional method. An Internet domain name (http://crm.fiu.edu) was created for the purpose of this research by uploading an initial one hundred plus abstracts of articles and documents onto it to form a knowledge database. Once the database was formed a search engine was developed to enable the search of abstracts using relevant CRM keywords to reveal emergent dominant CRM topics. The ultimate aim of this website is to serve as an information hub for CRM research, as well as a search engine where interested parties can enter CRM-relevant keywords or phrases to access abstracts, as well as submit abstracts to enrich the knowledge hub. ^ Research questions were investigated and answered by content analyzing the interpretation and discussion of dominant CRM topics and then amalgamating the findings. This was supported by comparisons within and across individual, paired, and sets-of-three occurrences of CRM keywords in the article abstracts. ^ Results show that there is a lack of holistic thinking and discussion of CRM in both academics and industry which is required to understand how the people, process, and technology in CRM impact each other to affect successful implementation. Industry has to get their heads around CRM and holistically understand how these important dimensions affect each other. Only then will organizational learning occur, and overtime result in superior processes leading to strong profitable customer relationships and a hard to imitate competitive advantage. ^

A methodology to measure coordination of business processes

Coordination of business processes is the management of dependencies where dependencies constrain how the tasks are performed. It has been traditionally done in an intuitive fashion, without paying much attention to the coordination load. Coordination load is being defined as the ratio between the time spent on coordination activities and the total task time. Previous efforts to understand and analyze coordination have resulted in mostly qualitative approaches to categorize and recommend coordination strategies. This research seeks to answer two questions: (1) How can we analyze process coordination problems to improve overall performance? (2) What guidance can we provide to reduce the coordination load of the process and consequently improve the organization's performance? Thus, this effort developed a quantitative measure for coordination load of business processes and a methodology to apply such measure. ^ This effort used a management simulation game to have a controlled laboratory environment enabling the manipulation of the task factors variability, analyzability, and interdependence to measure their impact on coordination load. The hypothesis was that the more variable, non-analyzable, and interdependent a process, the higher the coordination load, and that a higher coordination load would have a negative impact on performance. Coordination load was measured via the surrogate coordination time, and performance via profit. ^ A 22 x 31 full factorial design, with two replicates, was run to observe the impact on the variables coordination time and profit. Properly validated spreadsheets and questionnaires were used as data collection instruments for each scenario. The experimental results indicate that lower task analyzability (ρ=0.036) and higher task interdependence (ρ=0.000) lead to higher coordination load, and higher levels of task variability (ρ=0.049) lead to lower performance. However, contrary to the hypotheses postulated by this work, coordination load did not prove to be strong predictor of performance (correlation of -0.086). ^ These findings from the laboratory experiment and other lessons learned were incorporated to develop a quantitative measure, a tool (survey) to use to gather data for the variables in the measures, and a methodology to quantify coordination load of production business processes. The practicality of the methodology is demonstrated with an example.^